Investing in Hydropower

Time to Buy Hydro?

In an attempt to assure voters that the federal government is doing everything it can to develop more “clean” energy, the DOE has worked up a new report that identifies more than 65 gigawatts of renewable energy that's ripe for the picking.

No, this isn't another backroom Solyndra deal or a few more million in research that should be raised by the private sector instead of off the backs of taxpayers. Instead, this is 64 gigawatts of potential that is already quite common all across the world.

No new technology is necessary, no long-term testing needs to be done, and there are unlikely any lawmakers nearing centenarian status that'll be frightened off by an inexplicable new innovation.

Before I tell you what this is, though, consider how many homes we can power with an additional 64 gigawatts.

How does 48 million strike you?

That's enough to power roughly 36% of all the housing units in the United States (based on 2012 Census data). And according to a lot of very excitable folks in Washington, hydropower is the key to reducing our reliance on fossil fuels.

Unfortunately, those 64 gigawatts of hydropower will never come online.

Don't Waste Your Time

If you're a regular reader of these pages, you know I'm the guy here at Energy and Capital who champions cleaner energy solutions more than anyone else. Not only am I passionate about utilizing smarter, cleaner forms of power generation and transportation fuels, but as an investor, I've made a fortune by playing new energy technologies.

So it came as no surprise when a number of investors asked me about this recent DOE report. They wanted to know if it was time to get into the hydro game. My response was simple: Don't waste your time!

While the DOE's data analysis of hydropower potential is sound, it is not a particularly useful piece of intel for energy investors, as it doesn't include any particulars on the obstacles that make a new run on hydro far from reality.

Tree Huggers

From an environmental perspective, hydro is billed as a clean, renewable resource.

Certainly in comparison to fossil fuels, this is true. However, from the tree-hugger point of view, hydro still carries with it a number of environmental burdens, including:

Loss of wetlands and wildlife habitat

Reduction of the flow of nutrients downstream

Reduction in biological activity downstream

Impeded fish migrations

These issues alone make new hydro projects extremely cumbersome because of environmental regulations and pushback.

Also worth noting is that while hydro is considered renewable because of annual rain and snowfall, extreme temperatures and weather conditions are starting to cause some to question its long-term viability.

Take, for instance, the six Colorado River damns in Central Texas that, because of continued drought conditions, could push water levels below levels necessary to keep the hydro generators cranking.

Or look at California, where reservoirs are so low, electricity from hydro could be halved this year. Extreme droughts and hydro reliance is not a good combination.

Of course, thanks to an increase in solar in California and an increase in wind in Texas, the loss of hydro won't be a death knell for grids. But it does send a very clear message that if extreme weather conditions are on the menu for the foreseeable future, hydro is probably not the way to go.

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As an investor, I never lose sight of the long-term view in the world of energy. It's the reason I've been able to profit so handsomely from stocks like SunPower (NASDAQ: SPWR), SolarCity (NASDAQ: SCTY), and Tesla (NASDAQ: TSLA).

Although fossil fuels are not going gently into that good night, the rise of cleaner energy is a lock going forward. And that's why I continue to stay so bullish on alternative energy.

Of course, don't let my enthusiasm for renewables dissuade you from the domestic oil and gas plays that continue to pump out profits better than anything — particularly those opportunities in the Petroplex (like this one), where every oil and gas insider already has a piece of the action.

The point is, while hydro is a very important part of our energy mix — and one that will be with us for years to come — the big money right now is in not in hydro but in solar and domestic oil and gas.

Jeff is the managing editor of Energy and Capital and contributing analyst for the Energy Investor, an independent investment research service focusing primarily on stocks in the oil & gas, modern energy and infrastructure markets. He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks. For more on Jeff, go to his editor's page.

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